Banks Catch a Housing Bounce

Yesterday, most of the major banks came to New York and told major tales of woe. Their net interest margins -- the key metric -- aren't going the right way. Loan growth is little to none. The fiscal cliff hits them square in the pocket. For every good morsel you had two or three bad ones.

It was a clarion call to sell.

But in a testament to how difficult this market really is, today is one of the best days for banking in ages. Led by what many are calling a rejuvenated Bank of America (BAC), and a new, take-no-prisoners attitude at Citigroup (C), this group rallied gigantically. To see Bank of America once again above $10 after a long period in purgatory is to remember how this bank, one of the largest holdings of so many in this country, could actually return to being a positive force in the Dow instead of a relentlessly negative one. JPMorgan Chase (JPM) and Wells Fargo (WFC), two totally stalled equities, look like they might have some jigginess to them.

I think people have gotten too negative at a time when the housing boomlet is on the verge of becoming a boom, and this group is still massively exposed to the value of your home.

Even KeyCorp (KEY), which I said yesterday has acted hideously, managed to stage a teeny-tiny reversal!! Hey, I will take it.

To me, the lesson is clear: Don't give up on whole groups where the longer-term trend they are the most levered to, the housing cycle, is turning up. In fact, it's probably time to circle back to the more typical housing plays, like Toll Brothers (TOL), which is now down almost 20% from its high. Its crime? Reporting a quarter that many skeptics say is too difficult to top!

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